The End of the Mortgage Forgiveness Debt Relief Act
The Mortgage Forgiveness Debt Relief Act was implemented in the year 2007 to help troubled homeowners manage their finances in a better way. Under this act, any mortgage debt was exempted from taxes, provided the lenders had forgiven it. In the era after the crisis, this was a very common practice, because at that time, there were many homeowners who had trouble in keeping up their mortgage payments.
When a part or all of a mortgage loan is waived, the income is treated as ordinary, and according to IRS, it is fully taxable. Since this can again create financial problems, Congress enforced another legislation to protect all these homeowners. This new policy remained effective in the year 2012 and the year 2013. However, plans to dismiss it were viewed at the end of last year, and so from the first of January 2014, the policy is no longer effective.
Ever since the first of January 2014, it has become mandatory for borrowers to pay taxes on that portion of the mortgage which was waived. This is due to the fact that lenders have started writing off these debts so that they can utilize them as deductions.
The above situation tends to create more problems for troubled homeowners whose finances are already in despair. Since these people cannot meet their mortgage payments, chances are they also cannot pay their taxes in full, which can lead to IRS trouble. In such a case, how can these borrowers fulfill their tax obligations and stay on the IRS’s good side?
The IRS has an installment plan that is offered to those consumers who cannot pay their taxes in full. Tax payers who sign up for this have around six years or 72 months to repay their tax debts. There are fees associated with registration, but they are very modest and the interest rates are fairly low. You can easily get a rate that is between 3% and 4%. The only thing that you will have to be careful of is to pay your payments in full and in a timely manner. Not abiding by this can result in the IRS filing liens against all your belongings. If in the course of this plan, you are entitled to a tax refund, it will also be used to decrease your remaining balance.
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